This week’s Simply Smart Social Expert Q&A was with Rosie Slosek of One Man Band Accounting. This time, we were talking all about what’s tax-deductible, what’s an expense, and what’s a capital item in your social media and content marketing.
Do plug-ins and pieces of software count as capital items?
It depends on how you pay. When your plug-in or software is a one-time only fee, that is a capital item as you’re buying it outright. When you pay per year, that’s an expense, as you’re paying for use for a year. For example, your WordPress theme is likely to a one-off purchase, so it’s a capital item. Your content plug-in is most likely to be a yearly licence, so that’s an expense. Content subscriptions like Buffer (LOVE that!) and Hootsuite are expenses. Photoshop is a capital item if you paid it all at once, or an expense if you have the most affordable per month option. They’re all tax-deductible too.
Why do we need to know what’s a capital item and what’s an expense? What’s the difference?
They are different. A capital item is an asset. A once-off purchase. Like your laptop, a camera, a desk, branding, or website design. Expenses are day-to-day costs of doing business. They are treated differently and have different rules for how much tax relief you can have even if they are tax-deductible (although you’re unlikely to go near the limit). It’s because tax-deductible capital items can include items like The Shard and combine harvesters and power stations, as well as your camera. You’ll appreciate why HMRC won’t give 100% tax relief for a business buying a million pound combine harvester, so there is a limit, although not a limit most of my clients ever cross. Have a look at my capital item ‘cheat sheet’ for more information.
Do you have any tips for expense tracking, for those people just starting out with their business?
I always suggest a simple spreadsheet if you’re a sole trader. I have a really basic one for free here. There are also lots of apps you can use, depending on how much time you spend out and about. You can also use accounting software. Wave is a good (free) entry point into accounting software, especially if you’re a sole trader and don’t need limited company functionality. There are also others like FreeAgent, Xero and Kashflow. I have a guide to accounting software if you feel that’s more your bag.
I’m really bad about scheduling time to update everything. I have a day every six months or so where I’m drowning in a swamp of receipts and overwhelm. Any tips for dealing with this?
Overwhelm, oh yes. Affects us all, even me! My first tip is to accept that perfection isn’t the goal here. It’s like with social media. Yes, you can spend all day on it, but it won’t get you further any more than being smarter with your time. It’s more about having a system that works for you and being understanding of yourself that it takes time to get there. Some people update every week, some every month, me? I do it a few random times a year. I find that’s best for me.
My top tip is to be consistent. When bills, statements and receipts come in, deal with them right then. It may be shoving them in a big box and organising later. That’s ok. It’s a lot better than wasting 3 hours of your life and what feels like All The Stress when you can’t find a bank statement.
For receipts and stuff, I love using my phone. I add any notes on the receipt I need, then take a photograph, which is automatically uploaded and backed up (Dropbox, Google Drive, Evernote etc). I then put them in an envelope with my name on it and enter them into my spreadsheet every August. That’s it.
Are there any common mistakes people make with what’s tax-deductible and what’s not?
For social media and content creation, it’s pretty simple. Most of it is tax-deductible. The only tricky part is with the higher priced training programmes for businesses that don’t have the income for it to count as an expense. For those, it’s on a case-by-case basis whether it’s a capital item or an expense and whether it’s tax-deductible. Pain the arse, I know.
How about things like books or workshops that focus on idea generation and the like?
Books are likely to be tax-deductible and will be expenses. Workshops most likely tax-deductible expenses too. I haven’t seen workshops that cost 4 figures yet. The cost matters because it’s whether it’s an expense or a capital item. They have different rules for what is tax-deductible.
Things that make your office space pretty – tax-deductible?
Oh yes. Usually. Stationery is a tax-deductible expense. Other items to make your office pretty: desk, chair, rug, lamp. They’re all tax-deductible capital items. You might have more of a challenge claiming decorations are tax-deductible, but create your vision board on a notice board and that’s tax-deductible capital item.
How about the super-coordinated bits and pieces people buy to style their Instagram photos?
All tax-deductible. I’m assuming here you have a business. Ms. Taxperson is also likely to have no clue at all about what you’re doing, so remember if HMRC ever wants to look at your accounts records, you’ll likely need to explain what they are, what you use them for, and how social media and Instagram isn’t pointless. Not that you haven’t had practice already.
Extra resources:
How to start a business as a freelancer
A round-up of freelance expenses
A guide to tax-deductible stationery
The “tick off your tax return” retreat
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